Exhibit 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ] $[ ]
Date: October 12, 2006
BIOPHAN TECHNOLOGIES, INC.
SENIOR SECURED CONVERTIBLE NOTE DUE
October 12, 2009
THIS NOTE is one of a series of duly authorized and issued Notes of
Biophan Technologies, Inc., a Nevada corporation (the "Company"), designated as
its Senior Secured Convertible Notes due October 11, 2009, in the aggregate
principal amount of $7,250,000 (the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to the order of
[Holder] or its registered assigns (the "Holder"), the principal sum of
[__________] $(__________) on October 11, 2009 (the "Maturity Date"), or such
earlier date as the Notes are required or permitted to be repaid as provided
hereunder, and to pay interest to the Holder on the aggregate unconverted and
then outstanding principal amount of this Note in accordance with the provisions
hereof. The principal amount of this Note may be increased as set forth in
Section 2(e) below. Notwithstanding the foregoing, the Company hereby
unconditionally promises to pay to the order of the Holder interest on any
principal or interest payable hereunder that shall not be paid in full when due,
whether at the time of any stated interest payment date or principal payment
date or maturity or by prepayment, acceleration or declaration or otherwise, for
the period from and including the due date of such payment to but excluding the
date the same is paid in full, at a rate of 18% per annum (but in no event in
excess of the maximum rate permitted under applicable law).
Interest payable under this Note shall be computed on the basis of a
year of 365 days and actual days elapsed (including the first day but excluding
the last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in Section 12
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in Section 12.
1. Definitions. In addition to the terms defined elsewhere in this Note,
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Securities Purchase Agreement, dated as of October
11, 2006, among the Company and the Purchasers identified therein (the "Purchase
Agreement"), and (b) the following terms have the meanings indicated:
"Conversion Date" means either (i) the date a Conversion
Notice is delivered to the Company together with the Conversion
Schedule pursuant to Section 6(a) or (ii) the date a conversion takes
place pursuant to Section 6(b).
"Conversion Notice" means a written notice in the form
attached hereto as Schedule 1.
"Conversion Price" means $0.67, subject to adjustment from
time to time pursuant to Section 10.
"Equity Conditions" means, with respect to a specified
issuance of Common Stock, that each of the following conditions is
satisfied: (i) the number of authorized but unissued and otherwise
unreserved shares of Common Stock is sufficient for such issuance; (ii)
such shares of Common Stock are registered for resale by the Holder and
may be sold by the Holder pursuant to an effective Registration
Statement covering the Underlying Shares or all such shares may be sold
without volume restrictions pursuant to Rule 144(k) under the
Securities Act; (iii) the Common Stock is listed or quoted (and is not
suspended from trading) on an Eligible Market and such shares of Common
Stock are approved for listing upon issuance; (iv) such issuance would
be permitted in full without violating Section 6(b) hereof or the rules
or regulations of any Trading Market; (v) no Bankruptcy Event has
occurred; (vi) no Event of Default has occurred; (vii) the daily
trading volume as reported on Bloomberg L.P. is greater than 250,000
shares for each of the preceding 10 Trading Days; and (viii) no public
announcement of a pending or proposed Change of Control transaction has
occurred that has not been consummated.
"Event Equity Value" means 110% of the arithmetic average of
the VWAP for each of the five Trading Days preceding the date of
delivery of the notice requiring payment of the Event Equity Value;
provided that if the Company does not make such required payment
(together with any other payments, expenses and liquidated damages then
due and payable under the Transaction Documents) when due or, in the
event the Company disputes in good faith the occurrence of the
Triggering Event pursuant to which such notice relates, does not
instead deposit such required payment (together with such other
payments, expenses and liquidated damages then due) in escrow with an
independent third-party escrow agent within five Trading Days of the
date such required payment is due, then the Event Equity Value shall be
110% of the greater of (a) the arithmetic average of the VWAP for each
of the five Trading Days preceding the date of delivery of the notice
requiring payment of the Event Equity Value and (b) the arithmetic
average of the VWAP for each of the five Trading Days preceding the
date on which such required payment (together with such other payments,
expenses and liquidated damages) is paid in full.
"Initial Interest Period" means the period beginning on the
Closing Date and ending on December 31, 2006.
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"Interest Period" means a period of six months for the
calculation of the interest on the Note; provided that any such period
(i) shall start on the last day of the preceding period (other than the
Initial Interest Period); (ii) which would otherwise end on a day which
is not a Trading Day shall be extended to the next succeeding day which
is a Trading Day and the following interest period shall then end on
the day on which it would have ended if the preceding interest period
had not been so extended; and (iii) which would otherwise overrun the
Maturity Date shall be shortened to end on the Maturity Date.
"Interest Rate" has the meaning set forth in Section 2(a)
herein.
"LIBOR" means, in respect of a six-month Interest Period (i)
the rate of interest per annum (expressed with a maximum of 4 decimals)
offered for deposits in the relevant currency and amount which appears
on Telerate page 3750 or on any other relevant Telerate, Bloomberg or
Xxxxxx page as of 11:00 a.m. London time two (2) Business Days prior to
the commencement of the relevant Interest Period; or (ii) should such
quotation not be published on the relevant day and time such interest
rate per annum according to such other widely published LIBOR quotation
as the Company may select for the relevant Interest Period as of 11:00
a.m. London time two (2) Business Days prior to the commencement of the
Interest Period.
"Original Issue Date" means the date of the first issuance of
any Notes, regardless of the number of transfers of any particular
Note.
"Principal Payment Date" means any date on which payment of a
principal amount of this Note shall be due and payable by the Company
in accordance with Section 2(b).
"Triggering Event" means any of the following events: (a) the
Company fails for any reason to deliver a certificate evidencing any
Securities to a Holder within five Trading Days after delivery of such
certificate is required pursuant to any Transaction Document or the
exercise or conversion rights of the Holders pursuant to any
Transaction Document are otherwise suspended for any reason; (b) the
Company fails to have available a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock available to
issue Underlying Shares upon any exercise of the Note; (c) at any time
after the Closing Date, any Common Stock issuable pursuant to the
Transaction Documents is not listed on an Eligible Market; (d) the
Company effects or publicly announces its intention to effect any
exchange, recapitalization or other transaction that effectively
requires or rewards physical delivery of certificates evidencing the
Common Stock; (e) the effectiveness of the Registration Statement
lapses for any reason or the Holder shall not be permitted to resell
any Underlying Shares under the Registration Statement, in either case,
for five or more Trading Days (which need not be consecutive Trading
Days); (f) the Company fails to make any cash payment required under
the Transaction Documents and such failure is not cured within five
days after notice of such default is first given to the Company by a
Holder; (g) a breach of any covenant contained herein or in any other
Transaction Document, (h) the failure of the Company to deliver the
executed agreements required under Section 2.3(a) of the Purchase
Agreement within 10 Trading Days following the Closing Date, or (i) the
Company breaches any representation or warranty or defaults in the
timely performance of any other obligation under the Transaction
Documents and such breach or default continues uncured for a period of
20 days after the date on which notice of such breach or default is
first given to the Company by a Holder (it being understood that no
prior notice need be given in the case of a breach or default that
cannot reasonably be cured within 20 days).
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2. Principal and Interest.
(a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note for each Interest
Period at a rate (the "Interest Rate") which is the lesser of (i) 12% per annum
and (ii) the greater of (a) 10% per annum, and (b) LIBOR plus 500 basis points
per annum. Each Interest Period, other than the Initial Interest Period shall
begin on March 31, June 30, September 30 and December 31 of each year occurring
prior to the Maturity Date. Interest shall be payable quarterly in arrears on
each March 31, June 30, September 30 and December 31 and on the Maturity Date,
except if such date is not a Trading Day, in which case such interest shall be
payable on the next succeeding Trading Day (each, an "Interest Payment Date").
The first Interest Payment Date shall be December 31, 2006. The amount of
interest paid on each Interest Payment Date shall be referred to as the
"Interest Payment Amount").
(b) Beginning on February 1, 2007, and on the first Trading Day for each
of the next 32 months thereafter (each, a "Principal Payment Date"), the Company
shall pay 3.0303% of the original principal amount of this Note to the Holder
(each, a "Monthly Installment") or until the principal amount has been reduced
to zero.
(c) Subject to the conditions and limitations set forth below, the Company
may pay interest or principal on this Note in (i) cash (ii) shares of Common
Stock or (iii) a combination of cash or shares of Common Stock. The Company must
deliver written notice to the Holder indicating the manner in which it intends
to pay interest and principal at least 20 Trading Days prior to each Interest
Payment Date (a "Interest Payment Notice") or Principal Payment Date (a
"Principal Payment Notice", and together with the Interest Payment Notice, each
a "Payment Notice"), as applicable, but the Company may indicate in any such
notice that the election contained therein shall continue for subsequent
Interest Payment Dates or Principal Payment Dates until revised. Failure to
timely provide such written notice shall be deemed an election by the Company to
pay the amount of any interest or principal in cash.
(d) Notwithstanding the foregoing, the Company may not pay interest or
principal by issuing shares of Common Stock unless (i) all of the Equity
Conditions are then satisfied with respect to all shares of Common Stock then
issuable upon conversion of all outstanding Notes, and (ii) as to such Interest
Payment Date and Principal Payment Date, prior to or on the date of the
applicable Payment Notice or if any Payment Notice indicates that such election
contained therein shall continue for subsequent Interest Payment Dates or
Principal Payment Dates, prior to or on the 20th Trading Day prior to such
Interest Payment Date or Principal Date (in each case, a "Share Delivery Date"),
as the case may be, the Company shall have delivered to the Holder's account
with The Depository Trust Company ("DTC") (or by physical certificate if the
Holder does not have an account with the DTC) a number of shares of Common Stock
(the "Conversion Shares") to be applied against such Interest Payment Amount or
Monthly Installment, as applicable, equal to:
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(i) with respect to an Interest Payment Amount, the quotient
of (x) the applicable Interest Payment Amount divided by (y) the lesser
of (I) the then Conversion Price (as adjusted in accordance herewith)
and (II) 90% of the arithmetic average of the VWAP for each of the 20
Trading Days ending immediately prior to the 23rd Trading Day that is
immediately prior to the applicable Interest Payment Date (subject to
adjustment for any stock dividend, stock split, stock combination or
other similar event affecting the Common Stock during such 20 Trading
Day period); and
(ii) with respect to a Monthly Installment, the quotient of
(x) the applicable Monthly Installment divided by (y) the lesser of (I)
the then Conversion Price (as adjusted in accordance herewith) and (II)
90% of the arithmetic average of the VWAP for each of the 20 Trading
Days ending immediately prior to the 23rd Trading Day that is
immediately prior to the applicable Principal Payment Date (subject to
adjustment for any stock dividend, stock split, stock combination or
other similar event affecting the Common Stock during such 20 Trading
Day period).
(e) Within 3 Trading Days of each Interest Payment Date or Principal
Payment Date, as applicable, the Company shall pay to the Holder additional
shares of Common Stock required to meet its obligations under Section 2(f) below
(to the extent the previously delivered Conversion Shares were not sufficient),
or credit against future interest or principal payments to be made on subsequent
Interest Payment Dates or Principal Payment Dates or Share Delivery Dates, as
the case may be, the excess of the Conversion Shares delivered to the Holders
pursuant to this Section 2(e) over the amount of shares of Common Stock due
under Section 2(f). If the Company is required to pay interest in cash on any
Interest Payment Date but fails to do so, the Holder may (but shall not be
required to) treat such interest as if it had been added to the principal amount
of this Note as of such Interest Payment Date or accept any number of shares of
Common Stock in lieu of such interest payment.
(f) In the event that the Company elects to pay interest or principal on
any Interest Payment Date or Principal Payment Date, as applicable, in shares of
Common Stock, the number of shares of Common Stock to be issued to each Holder
as such interest or principal shall be (i) with respect to interest, determined
by dividing the aggregate amount of interest then payable to such Holder at the
Market Price (as defined below) as of the applicable Interest Payment Date, and
rounding up to the nearest whole share, (ii) with respect to principal,
determined by dividing the total principal then payable to such Holder by the
lesser of (x) the then Conversion Price (as adjusted in accordance herewith) and
(y) at the Market Price as of the applicable Principal Payment Date, and
rounding up to the nearest whole share, and (iii) paid to such Holder in
accordance with Section 2(g) below, taking into account the Conversion Shares
delivered pursuant to Section 2(d). The term "Market Price" shall mean the
lesser of (I) the then Conversion Price (as adjusted in accordance herewith) and
(II) 90% of the arithmetic average of the VWAP for each of the 20 Trading Days
ending immediately prior to the applicable Interest Payment Date or Principal
Payment Date, as the case may be (not including such date).
5
(g) In the event that any interest or principal is paid in Common Stock,
the Company shall within two Trading Days of such Interest Payment Date or
Principal Payment Date or on the Share Delivery Date (i) issue and deliver to
such Holder a certificate, free of restrictive legends, registered in the name
of the Holder or its designee, for the number of shares of Common Stock to which
the Holder shall be entitled, or (ii) at all times after the Holder has notified
the Company that this clause (ii) shall apply, credit the number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with The DTC through its Deposit Withdrawal Agent
Commission System.
(h) Except as otherwise set forth herein, the Notes may not be prepaid in
whole or part absent written consent from the Holder.
3. Ranking and Covenants.
(a) Except for those amounts of indebtedness set forth in Schedule 3.1(dd)
of the Purchase Agreement as being senior to, or pari passu with, the Notes (the
"Existing Indebtedness"), no indebtedness of the Company is senior to, or pari
passu with, this Note in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise. Other than the Existing
Indebtedness and any renewal, refinancing or replacement thereof that does not
exceed the aggregate amount of the Existing Indebtedness and the borrowing
availability under the related credit or loan agreements on the date hereof, the
Company will not, and will not permit any Subsidiary to, directly or indirectly,
enter into, create, incur, assume or suffer to exist any indebtedness of any
kind, that is senior or pari passu in any respect to the Company's obligations
under the Notes, other than indebtedness secured by purchase money security
interests (which will be senior only as to the underlying assets covered
thereby) and indebtedness under capital lease obligations (which will be senior
only as to the assets covered thereby); and the Company will not, and will not
permit any subsidiary to, directly or indirectly, incur any Lien on or with
respect to any of its property or assets now owned or hereafter acquired or any
interest therein or any income or profits therefrom.
(b) So long as any Notes are outstanding, neither the Company nor any
Subsidiary shall, directly or indirectly, (i) redeem, purchase or otherwise
acquire any capital stock or set aside any monies for such a redemption,
purchase or other acquisition or (ii) issue any Common Stock Equivalents with an
effective price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Stock (a "Floating Price Security").
(c) The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying Shares as
required hereunder, the number of Underlying Shares which are then issuable and
deliverable upon the conversion of (and otherwise in respect of) this entire
Note (taking into account the adjustments set forth in Section 10 and
disregarding any limitations set forth in Section 6(b)), free from preemptive
rights or any other contingent purchase rights of Persons other than the Holder.
The Company covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized and issued and fully paid and nonassessable.
6
4. Registration of Notes. The Company shall register the Notes upon
records to be maintained by the Company for that purpose (the "Note Register")
in the name of each record holder thereof from time to time. The Company may
deem and treat the registered Holder of this Note as the absolute owner hereof
for the purpose of any conversion hereof or any payment of interest or principal
hereon, and for all other purposes, absent actual notice to the contrary.
5. Registration of Transfers and Exchanges. The Company shall register the
transfer of any portion of this Note in the Note Register upon surrender of this
Note to the Company at its address for notice set forth herein. Upon any such
registration or transfer, a new Note, in substantially the form of this Note
(any such new Note, a "New Note"), evidencing the portion of this Note so
transferred shall be issued to the transferee and a New Note evidencing the
remaining portion of this Note not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
6. Conversion.
(a) At the Option of the Holder. All or any portion of this Note shall be
convertible into shares of Common Stock (subject to the limitations set forth in
Section 6(b)), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. The number of Underlying Shares issuable
upon any conversion hereunder shall equal the outstanding principal amount of
this Note to be converted, plus the amount of any accrued but unpaid interest on
this Note through the Conversion Date, divided by the Conversion Price on the
Conversion Date. The Holder shall effect conversions under this Section 6(a) by
delivering to the Company a Conversion Notice together with a schedule in the
form of Schedule 2 attached hereto (the "Conversion Schedule"). If the Holder is
converting less than all of the principal amount of this Note, or if a
conversion hereunder may not be effected in full due to the application of
Section 6(b), the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to the Holder a Conversion Schedule
indicating the principal amount (and accrued interest) which has not been
converted. In the event of a partial conversion of this Note pursuant to the
terms hereof, the principal amount converted shall be deducted from the Monthly
Installments relating to the Principal Payment Dates as set forth in the
Conversion Notice.
7
(b) Certain Conversion Restrictions.
(i) Subject to Section 6(b)(ii), the number of shares of
Common Stock that may be acquired by a Holder upon any conversion of
Notes (or otherwise in respect hereof) shall be limited to the extent
necessary to insure that, following such conversion (or other
issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with such
Holder's for purposes of Section 13(d) of the Exchange Act, does not
exceed 4.999% (the "Threshold Percentage") or 9.999% (the "Maximum
Percentage") of the total number of issued and outstanding shares of
Common Stock (including for such purpose the shares of Common Stock
issuable upon such conversion). For such purposes, beneficial ownership
shall be determined in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. Each delivery
of a Conversion Notice hereunder will constitute a representation by
the applicable Holder that it has evaluated the limitations set forth
in this Section 6(b)(i) and has determined that issuance of the full
number of Underlying Shares issuable in respect of such Conversion
Notice does not violate the restrictions contained in this Section
6(b)(i).
(ii) Notwithstanding the provisions of Section 6(b)(i), by
written notice to the Company, the Holder shall have the right (x) at
any time and from time to time to reduce its Maximum Percentage
immediately upon notice to the Company in the event and only to the
extent that Section 16 of the Exchange Act or the rules promulgated
thereunder (or any successor statute or rules) is changed to reduce the
beneficial ownership percentage threshold thereunder to a percentage
less than 9.999% and (y) at any time and from time to time, to waive
the provisions of this Section insofar as they relate to the Threshold
Percentage or to increase its Threshold Percentage (but not in excess
of the Maximum Percentage) unless the Holder shall have, by written
instrument delivered to the Company, irrevocably waived its rights to
so increase its Threshold Percentage, but (i) any such waiver or
increase will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or
decrease will apply only to the Holder and not to any other holder of
Notes.
7. Mechanics of Conversion.
(a) Upon conversion of this Note, the Company shall promptly (but in no
event later than three Trading Days after the Conversion Date) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate a certificate for the
Underlying Shares issuable upon such conversion, free of restrictive legends
unless a registration statement covering the resale of the Underlying Shares and
naming the Holder as a selling stockholder thereunder is not then effective
under the Securities Act and such Underlying Shares are not then freely
transferable without volume restrictions pursuant to Rule 144 under the
Securities Act. The Holder, or any Person so designated by the Holder to receive
Underlying Shares, shall be deemed to have become holder of record of such
Underlying Shares as of the Conversion Date. The Company shall, upon request of
the Holder, use its best efforts to deliver Underlying Shares hereunder
electronically through the DTC or another established clearing corporation
performing similar functions.
8
(b) The Holder shall not be required to deliver the original Note in order
to effect a conversion hereunder. Execution and delivery of the Conversion
Notice shall have the same effect as cancellation of the original Note and
issuance of a New Note representing the remaining outstanding principal amount.
Upon surrender of this Note following one or more partial conversions, the
Company shall promptly deliver to the Holder a New Note representing the
remaining outstanding principal amount.
(c) The Company's obligations to issue and deliver Underlying Shares upon
conversion of this Note in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any set-off, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Underlying Shares.
(d) If by the third Trading Day after a Conversion Date the Company fails
to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), then the Holder will have the right to
rescind such conversion.
(e) If by the third Trading Day after a Conversion Date the Company fails
to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), and if after such third Trading Day
the Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by such Holder of the
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall either (i) pay cash to such Holder in an
amount equal to such Holder's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point the Company's obligation to deliver such certificate
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Holder a certificate or certificates representing
such Common Stock and pay cash to such Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (A) such number of shares of
Common Stock, times (B) the Closing Price on the date of the event giving rise
to the Company's obligation to deliver such certificate.
8. Events of Default.
(a) "Event of Default" means any one of the following events (whatever the
reason and whether it shall be voluntary or involuntary or effected by operation
of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):
(i) any default in the payment (free of any claim of subordination)
of principal, interest or liquidated damages in respect of any Notes, as
and when the same becomes due and payable (whether on a date specified for
the payment of interest or the date on which the obligations under the
Note mature or by acceleration, redemption, prepayment or otherwise);
9
(ii) the Company or any Subsidiary defaults in any of its
obligations under any other note or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced, any indebtedness for borrowed money or money due
under any long term leasing or factoring arrangement of the Company or any
Subsidiary in an amount exceeding $1,000,000, whether such indebtedness
now exists or is hereafter created, and such default results in such
indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise become due and payable;
(iii) the occurrence of a Triggering Event;
(iv) the occurrence of a Bankruptcy Event; or
(v) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against the Company or any
of its Subsidiaries by a court of competent jurisdiction and which
judgments are not, within sixty (60) days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within sixty
(60) days after the expiration of such stay; provided, however, that any
judgment which is covered by insurance or an indemnity from a creditworthy
party shall not be included in calculating the $500,000 amount set forth
above so long as the Company provides the Holder a written statement from
such insurer or indemnity provider to the effect that such judgment is
covered by insurance or an indemnity and the Company will receive the
proceeds of such insurance or indemnity within sixty (60) days of the
issuance of such judgment.
(b) At any time or times following the occurrence of an Event of Default,
the Holder shall have the option to elect, by notice to the Company (an "Event
Notice"), to require the Company to repurchase all or any portion of (i) the
outstanding principal amount of this Note, at a repurchase price equal to the
greater of (A) 110% of such outstanding principal amount, plus all accrued but
unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon, and (ii) any Underlying Shares
issued to such Holder upon conversion of Notes and then owned by the Holder, at
a price per share equal to the Event Equity Value of such issuable and issued
Underlying Shares. The aggregate amount payable pursuant to the preceding
sentence is referred to as the "Event Price." The Company shall pay the Event
Price to the Holder no later than the third Trading Day following the date of
delivery of the Event Notice, and upon receipt thereof the Holder shall deliver
this Note and certificates evidencing any Underlying Shares so repurchased to
the Company (to the extent such certificates have been delivered to the Holder).
(c) Upon the occurrence of an Event of Default, the Holder shall have the
right, upon 2 Trading Days notice to the Company, to review and inspect the
books and records of the Company.
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(d) Upon the occurrence of any Bankruptcy Event, all amounts pursuant to
Section 8(b) shall immediately become due and payable in full in cash, without
any further action by the Holder.
(e) In connection with any Event of Default, the Holder need not provide
and the Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Any such declaration may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereto.
9. Charges, Taxes and Expenses. Issuance of certificates for Underlying
Shares upon conversion of (or otherwise in respect of) this Note shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Underlying Shares or Notes in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Note or receiving Underlying
Shares in respect hereof.
10. Certain Adjustments. The Conversion Price is subject to adjustment
from time to time as set forth in this Section 10.
(a) Stock Dividends and Splits. If the Company, at any time while this
Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise
makes a distribution on any class of capital stock that is payable in shares of
Common Stock, (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, or (iii) combines outstanding shares of Common Stock into a
smaller number of shares, then in each such case the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
Section 10(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this Section 10(a) shall
become effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Company, at any time while this Note is
outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "Distributed
Property"), then in each such case the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Conversion Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company, (an
"Appraiser"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Conversion Price, at the request of the Holder delivered
before the 90th day after such record date, the Company will deliver to such
Holder, within five Trading Days after such request (or, if later, on the
effective date of such distribution), the Distributed Property that such Holder
would have been entitled to receive in respect of the Underlying Shares for
which this Note could have been exercised immediately prior to such record date.
If such Distributed Property is not delivered to a Holder pursuant to the
preceding sentence, then upon conversion of this Note that occurs after such
record date, such Holder shall remain entitled to receive, in addition to the
Underlying Shares otherwise issuable upon such conversion (if applicable), such
Distributed Property.
11
(c) Fundamental Changes. If, at any time while this Note is outstanding, (i) the
Company effects any merger or consolidation of the Company with or into another
Person, (ii) the Company effects any sale of all or substantially all of its
assets in one or more transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock described in Section 10(a)) (in any such
case, a "Fundamental Change"), then upon any subsequent conversion of this Note,
the Holder shall have the right to receive, for each Underlying Share that would
have been issuable upon such conversion absent such Fundamental Change, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Change if it had been,
immediately prior to such Fundamental Change, the holder of one share of Common
Stock (the "Alternate Consideration"). If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Change, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such
Fundamental Change. In the event of a Fundamental Change, the Company or the
successor or purchasing Person, as the case may be, shall execute with the
Holder a written agreement providing that:
(i) this Note shall thereafter entitle the Holder to purchase the
Alternate Consideration,
(ii) in the case of any such successor or purchasing Person, upon
such consolidation, merger, statutory exchange, combination, sale or
conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Note and the Purchase Agreement, and
12
(iii) if registration or qualification is required under the
Exchange Act or applicable state law for the public resale by the
Holder of shares of stock and other securities so issuable upon
exercise of this Note, such registration or qualification shall be
completed prior to such reclassification, change, consolidation,
merger, statutory exchange, combination or sale.
If, in the case of any Fundamental Change, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may be,
in such Fundamental Change, then such written agreement shall also be executed
by such other Person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving Person in such Fundamental
Change shall issue to the Holder a new Note consistent with the foregoing
provisions and evidencing the Holder's right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Change
is effected shall include terms requiring any such successor or surviving Person
to comply with the provisions of this Section 10(c) and insuring that this Note
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Change. If any Fundamental
Change constitutes or results in a Change of Control, then at the request of the
Holder delivered before the 45th day after such Fundamental Change, the Company
(or any such successor or surviving entity) will purchase this Note from the
Holder for a purchase price, payable in cash within five Trading Days after such
request (or, if later, on the effective date of the Fundamental Transaction),
equal to the greatest of (i) the Black Scholes value of the remaining
unexercised portion of this Note on the date of such request, (ii) 110% of the
outstanding principal amount, plus all accrued but unpaid interest thereon
through the date of payment, and (iii) the Event Equity Value.
(d) Subsequent Equity Sales.
(i) If, at any time while this Note is outstanding, the Company or
any Subsidiary issues additional shares of Common Stock or rights,
warrants, options or other securities or debt convertible, exercisable or
exchangeable for shares of Common Stock or otherwise entitling any Person
to acquire shares of Common Stock (collectively, "Common Stock
Equivalents") at an effective net price to the Company per share of Common
Stock (the "Effective Price") less than the Conversion Price (as adjusted
hereunder to such date), then the Conversion Price shall be reduced to
equal the Effective Price. For purposes of this paragraph, in connection
with any issuance of any Common Stock Equivalents, (A) the maximum number
of shares of Common Stock potentially issuable at any time upon
conversion, exercise or exchange of such Common Stock Equivalents (the
"Deemed Number") shall be deemed to be outstanding upon issuance of such
Common Stock Equivalents, (B) the Effective Price applicable to such
Common Stock shall equal the minimum dollar value of consideration payable
to the Company to purchase such Common Stock Equivalents and to convert,
exercise or exchange them into Common Stock (net of any discounts, fees,
commissions and other expenses), divided by the Deemed Number, and (C) no
further adjustment shall be made to the Conversion Price upon the actual
issuance of Common Stock upon conversion, exercise or exchange of such
Common Stock Equivalents.
13
(ii) If, at any time while this Note is outstanding, the Company or
any Subsidiary issues Common Stock Equivalents with an Effective Price or
a number of underlying shares that floats or resets or otherwise varies or
is subject to adjustment based (directly or indirectly) on market prices
of the Common Stock (a "Floating Price Security"), then for purposes of
applying the preceding paragraph in connection with any subsequent
conversion, the Effective Price will be determined separately on each
Conversion Date and will be deemed to equal the lowest Effective Price at
which any holder of such Floating Price Security is entitled to acquire
Common Stock on such Conversion Date (regardless of whether any such
holder actually acquires any shares on such date).
(iii) Notwithstanding anything to the contrary herein or in any of
the other Transaction Documents, no adjustment will be made under this
paragraph (d) in respect of Excluded Stock.
(e) Calculations. All calculations under this Section 10 shall be made to
the nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant
to this Section 10, the Company at its expense will promptly compute such
adjustment in accordance with the terms hereof and prepare and deliver to the
Holder a certificate describing in reasonable detail such adjustment and the
transactions giving rise thereto, including all facts upon which such adjustment
is based.
(g) Notice of Corporate Events. If the Company (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Change or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 Trading Days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to convert this Note prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
11. No Fractional Shares. The Company shall not issue or cause to be
issued fractional Underlying Shares on conversion of this Note. If any fraction
of an Underlying Share would, except for the provisions of this Section 11, be
issuable upon conversion of this Note, the number of Underlying Shares to be
issued will be rounded up to the nearest whole share.
14
12. Notices. Any and all notices or other communications or deliveries
hereunder (including any Conversion Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section 12 prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 12 on a day that is not a Trading Day or later than
6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to 000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxx Xxxxxxxxx, Xxx Xxxx
00000, facsimile: (000) 000-0000, attention Chief Executive Officer, or (ii) if
to the Holder, to the address or facsimile number appearing on the Company's
Noteholder records or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 12.
13. Security. This Note is secured to the extent and in the manner set
forth in the Security Agreement.
14. Miscellaneous.
(a) This Note shall be binding on and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. The Company shall
not be permitted to assign this Note.
(b) Subject to Section 14(a), nothing in this Note shall be construed to
give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or cause under this Note.
(c) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS),
AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
15
(d) The headings herein are for convenience only, do not constitute a part
of this Note and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Note shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Note shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Note.
(f) In the event of any stock split, subdivision, dividend or distribution
payable in shares of Common Stock (or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly shares
of Common Stock), combination or other similar recapitalization or event
occurring after the date hereof, each reference in this Note to a price shall be
amended to appropriately account for such event.
(g) No provision of this Note may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the Holder
or, or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Note shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or
a waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by a duly authorized officer as of the date first above indicated.
BIOPHAN TECHNOLOGIES, INC.
By
----------------------------------
Name:
Title:
Schedule 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of
Senior Secured Convertible Notes (the "Notes") into shares of common stock,
$0.005 par value (the "Common Stock"), of Biophan Technologies, Inc., a Nevada
corporation, according to the conditions hereof, as of the date written below.
--------------------------------------------------------
Date to Effect Conversion
--------------------------------------------------------
Principal amount of Notes owned prior to conversion
--------------------------------------------------------
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
--------------------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------------------
Applicable Conversion Price
--------------------------------------------------------
Principal amount of Notes owned subsequent to Conversion
--------------------------------------------------------
Principal Payment Dates subject to reduction and amount
of reduction of Monthly Installment
--------------------------------------------------------
Name of Xxxxxx
By
------------------------------------------------------
Name:
Title:
Schedule 2
CONVERSION SCHEDULE
This Conversion Schedule reflects conversions of the Senior Secured Convertible
Notes issued by Biophan Technologies, Inc.
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Aggregate Principal Amount Remaining
Date of Conversion Amount of Conversion Subsequent to Conversion
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